Steady Interest Rates Have Farmers Riding World Price Boon

Australian farmers have been buoyed by the continued strength of world agricultural commodity prices, which are providing some insulation from the prospect of continued dry conditions. The Westpac-NFF rural commodity price index is now 7.6 per cent up on a year ago, supported by recent depreciation of the Australian dollar against the United States currency.

“There is no doubt that the 3.1 per cent depreciation of the Australian dollar against the Greenback in June is welcomed by exporters of rural commodities,” Chair of the NFF Farm Business and Economics Committee, Charles Burke, said.

“Our farmers are pleased that the Reserve Bank of Australia has resisted the urge to lift interest rates yesterday despite the continued strength of the Australian economy. In doing so, they have eased any upward pressure on our dollar, ensuring that our rural commodity exports retain their competitive position on world markets.”

Mr Burke noted that the prices of rural commodities had been providing welcome relief to farmers who are still in the grips of, or recovering from, drought.

“Over the last 12 months, there appears to be continued underlying strength in demand for all our major agricultural commodities at a time when farmers need it most,” he said.

“Dry conditions continue in large stretches of rural and regional Australia, so the good prices have ensured that farmer’s incomes receive some insulation from the prospect of lower production output.”

Senior Economist with Westpac Banking Corporation, Justin Smirk, added: “Dry seasonal conditions pose a threat not just to Australian production, but also global grain production. So while it is still early days, and seasonal conditions can still improve, the short-term outlook for rural commodity prices is more positive that it has been from some time.

“This is fortuitous as commodity prices may provide a positive offset against the risk of the RBA raising rates again in 2006.”

The Westpac-NFF Index is weighted according to the value of Australian agricultural exports and includes only rural commodities – unlike other price indices that are overshadowed by oil, mineral and energy prices. It provides daily movements based on prices of Australia’s eight key farm exports – wheat, barley, beef, wool, cotton, sugar, dairy and canola – in both $US and $A.